Sunday, October 12, 2008

A message to Peter Hitchens

Peter Hitchens seems to me one of the few independently-minded journalists in the mainstream media. One of the pieces in the MoS (and his blog) today reflects on the damage caused by BBC blabbermouth financial commentator Robert Peston and whether the credit crunch could have been anticipated. Hitchens says, in passing, that although he himself had bad feelings about our Roaring-Twenties-type economy, no-one really knew what would happen.

Rarely for me, I completely disagree with him, and think that if he turned his mind to this subject he might be influential enough to help some greatly-needed changes happen. So I comment:

Re your Peston piece and "The truth is, nobody really knew":

Sadly, this state of affairs was in fact VERY well-anticipated. As an independent financial adviser, I repeatedly relayed warnings via my newsletters to clients about the increasing debt in the USA, starting a decade ago. On 20 October 1999 I attended a breakfast meeting given by an investment company to drum up business, and a rep stated that the Dow was 50% overvalued. This confirmed me in the intuitive feeling I had long had, that a collapse was imminent. I feared the consequences so much that I put my business on the back burner and returned to teaching, which is something not lightly to be done, you will understand.

The stockmarket collapse began on the first trading day in 2000. Jerkily, the FTSE went down to less that half its 1999 peak by March 2003, at which point I thought lessons might have been learned and we could start to invest with confidence; but then (and you can see the BoE statistics online) the rate of increase of the money supply was allowed to soar by an extra 5% per annum. The investment bubble had turned into a banking bubble, which led to the horrendous property price instability that now threatens the financial system itself. The government is deeply implicated, since its regulators allowed banking reserves to be pared back (this is part of how you increase the money supply) so that when a crisis occurred, the lifeboats weren't there.

I repeat, very clear warnings have been sounded for a very long time by respected investment experts, mostly from the USA as the average Brit has very little understanding of money since we are rarely allowed to make or keep much of it. So I began a blog, in May last year, to learn more myself and to sound Cassandra-type warnings to any who would listen.

Bankers, politicians and economists knew very well, or ought to have known, the consequences, and the worst result of the present debacle is that it is likely that none of them will face Enron-style prosecution and punishment. They and/or their successors will therefore do it all over again, to their enormous gain and our near-ruin, as they have done periodically for centuries. Unless the perpetrators are punished in a way that will be remembered for generations, this moral hazard will continue to be a profound threat to our financial security and social stability.

You have written an excellent book on the mutilation of the British police, and I can promise you that the basics of finance are nothing like as complex as the professional fraudsters of the investment and banking community would like you to believe. I do really wish and hope that you will turn your investigative and communication skills to an analysis of what really went wrong with our Western economies.


Nick Drew said...

great comment, it's amazing how someone as skeptical and alert as Hitchens could be so simple-minded on this one

he's an impressive but odd chap, isn't he: I met him 30 years ago and he left a strange impression

EK apparently conducted a lengthy correspondence with him a few year back

and then there is the bizarre 'spoof PH blogger' incident of 2006

but despite all he seems to have the power for good in his knapsack

Anonymous said...

Direct him to web sites like Financial, they have been anticipating this for years. In fact the way things have developed, one might be forgiven for thinking they might have written the script.

ed thomas said...
This comment has been removed by the author.
ed thomas said...

The reason the likes of Hitchens don't see the obvious in terms of the predictability of the crisis is that they are essentially insiders to the bubble- albeit in a cossetted corner of it. Reporters report, which means they simply reflect what is understood at the time they are writing- having done that for ten years while the bubble grew up must mean it had a feeling of being natural. If you're consciously outside the bubble, you see it as having roots in actions- not as a natural phenomenon. I always felt the unnaturalness of it, partly because I my nature insists on having a reason for everything, and also because I didn't partake much of the bubble's comforts.

Sackerson said...

Nick, he usually impresses me even though he's idiosyncratic (perhaps because).

Anon: yes, one of many farsighted campaigning websites, mostly American.

Ed - I think he had his mind on other aspects of our misgovernment. Besides, I think many of our British journos think they can't understand finance and leave it alone.